- Diluted earnings of $1.13 per share, a year-over-year increase
of $0.31
- $196 million investment in infrastructure investments through
the first nine months of 2023
- Closed on the acquisitions of KT Water Development and KT Water
Resources by Texas Water
- Water Cost of Capital Mechanism (WCCM)-adjusted return on
equity of 9.31% in California
- Quarterly dividend of $0.38 per share declared
- 2023 Guidance increased to $2.65 to $2.70 from $2.40 to
$2.50
SJW Group (NYSE: SJW) today reported financial results for the
third quarter ended September 30, 2023.
“We are pleased that our third quarter financial results and
operating performance continue the strong momentum of the first
half of the year,” stated SJW Group Chair, CEO, and President, Eric
W. Thornburg. “We made solid progress towards meeting our annual
capital expenditure goals, with $196 million invested to date in
improving and maintaining our water supply and infrastructure
across our local operations; achieved constructive regulatory
outcomes in the California Cost of Capital proceeding, providing an
adjusted return on equity of 9.31% with the Water Cost of Capital
Mechanism; and added new service connections and increased water
supply by approximately 40% in our Texas service area by completing
opportunistic acquisitions. The impressive work of our team at SJW
Group this year has allowed us to increase our 2023 earnings
guidance. I’m confident that our consistent focus on refining and
executing our growth strategy will continue to position us for
greater success.”
Operating Notes and Highlights
Comparisons between 2023 and 2022 operating results are affected
by and reflect the delay in San Jose Water Company’s (SJWC) 2022 to
2024 general rate case (GRC) proceeding. As a reminder, while the
California Public Utilities Commission (CPUC) approved the
settlement agreement and SJWC recorded the authorized revenue
increase from the GRC in the fourth quarter of 2022, the revenue
increase was retroactive back to January 1, 2022. This delayed
recognition of GRC-authorized revenues affects quarter-over-quarter
comparisons through 2023.
In contrast to the first half of the year, we have seen demand
recover in the third quarter in California and Texas.
As of April 11, 2023, and through the third quarter, SJWC was
not afforded the revenue protections of the Water Conservation
Memorandum Account (WCMA) and Water Conservation Expense Memorandum
Account (WCEMA) that were in place to offset the effect of lower
water usage due to mandatory conservation. As noted in more detail
below, on October 2, 2023, the CPUC authorized reimplementation of
the WCMA and WCEMA retroactive to April 20, 2023. However, because
of the timing, the benefit of the mechanisms is not reflected in
results between April and September 30, 2023.
Quarterly Operating Results
Net income for the quarter ended September 30, 2023, was $36.2
million, or $1.13 per diluted share, up 45% compared to $25.0
million, or $0.82 per diluted share, in the same quarter last year.
The increase was primarily driven by rate filings in Connecticut
and Maine, the delay in SJWC's 2022 GRC, and higher customer
usage.
Operating revenue for the quarter ended September 30, 2023, was
$204.8 million, up 16% compared to $176.0 million for the same
quarter last year. The increase was primarily driven by $22.6
million in rate filings, higher customer usage of $8.3 million
driven primarily by weather conditions and the end of California
mandatory water conservation requirements, and customer growth of
$1.1 million; partially offset by a net decrease of $3.2 million
due to regulatory mechanism adjustments.
Operating expenses for the quarter ended September 30, 2023,
were $148.2 million, up 7% compared to $138.4 million for the same
quarter last year. This change in operating expenses reflects:
- An increase in water production expenses of $9.0 million, to
$82.6 million in the third quarter 2023 compared to $73.6 million
in the same quarter last year;
- An increase in depreciation and amortization of $0.9 million
primarily due to increases in new utility plant additions;
- An increase in taxes other than income of $0.4 million;
and
- A decrease in maintenance expenses of $0.6 million primarily
due to proactive asset management and advanced leak detection
reducing emergency projects and replacing them with scheduled
improvements that are no longer temporary in nature.
The effective consolidated income tax rates for the third
quarter of September 30, 2023 and 2022 were approximately 11% and
1%, respectively. The higher effective tax rate for the three
months ended September 30, 2023 was primarily due to the tax
benefit relating to an accounting method change recorded in the
third quarter 2022. There was no such benefit recorded in the third
quarter of 2023.
Operating Results Year-to-Date
Net income in the first nine months of 2023 was $66.0 million,
or $2.09 per diluted share, up 64% compared to $40.3 million, or
$1.33 per diluted share, in the same period last year. The increase
was primarily driven by rate filings in California and Maine, and
the delay in SJWC's 2022 GRC.
Operating revenue for the first nine months of 2023 was $499.0
million, up 11% compared to $449.3 million for the same period last
year. The increase was primarily driven by $54.7 million in rate
filings and customer growth of $3.0 million; partially offset by
lower customer usage of $7.3 million driven primarily by weather
conditions and $0.8 million due to regulatory mechanism
adjustments.
Operating expenses for the first nine months of 2023 were $386.1
million, up 5% compared to $368.7 million for the same period last
year. This change in operating expenses reflects:
- An increase in water production expenses of $11.9 million, to
$191.5 million in the first nine months of 2023 compared to $179.7
million in the same period last year;
- A decrease in the gain on sale of nonutility properties of $5.5
million due to the recording of a non-recurring sale of non-utility
properties in 2022, and no recorded gain on the sale of nonutility
properties in 2023;
- An increase in depreciation and amortization of $2.9 million
primarily due to increases in depreciation related to new utility
plant additions; partially offset by a $2.4 million one-time impact
related to amortization on certain Cupertino concession assets in
2022; and
- A decrease in maintenance expenses of $1.8 million primarily
due to proactive asset management and advanced leak detection
reducing emergency projects and replacing them with scheduled
improvements that are no longer temporary in nature.
The effective consolidated income tax rates for the first nine
months ended September 30, 2023 and 2022 were approximately 6% and
8%, respectively. The lower effective tax rate for the nine months
ended September 30, 2023 was primarily due to higher flow-through
tax benefits.
Capital Expenditures
During the first nine months of 2023, SJW Group invested $196
million in infrastructure and water supply, which is approximately
77% of the 2023 capital expenditures budget.
SJW Group plans to invest more than $1.6 billion in capital over
the next 5 years to build and maintain its water and wastewater
operations, which includes approximately $230 million to install
PFAS treatment, subject to regulatory approvals and availability of
funding.
Rate Activity and Regulatory Updates
California
On July 31, 2023, new rates went into effect that included a
Water Cost of Capital Mechanism (WCCM)-adjusted return on equity
(ROE) of 9.31%, an increase of 51 basis points, a 5.26% cost of
debt, and 7.47% overall rate of return. The WCCM is triggered and
provides adjustments to SJWC’s return on equity and cost of debt if
the average Moody’s Aa utility bond index rate varies by more than
100 basis points from the period of October 1st to September 30th
of the following year. Between October 1, 2022 and September 30,
2023, the index rate increased approximately 140 basis points,
surpassing the required WCCM trigger. On October 13, 2023, SJWC
filed advice letter number 601 to trigger the WCCM for 2024. SJWC
expects a WCCM-adjusted ROE of approximately 10.01%, less a 20
basis point reduction due to the reimplementation of the WCMA and
WCEMA, to become effective on January 1, 2024.
On October 2, 2023, the CPUC approved SJWC’s request for
reimplementation of the WCMA and WCEMA, which are temporary revenue
protection mechanisms that allows water utilities to still realize
revenues that would have otherwise been lost due to successful
water conservation efforts. The WCMA and WCEMA had been in place
during the most recent drought, but were no longer available after
Governor Newsom declared the end of the drought emergency on April
11, 2023. SJWC requested authorization to continue use of the
mechanisms based on its water wholesaler’s request for a voluntary
15% reduction in water usage. Valley Water has cited restricted
local storage over the next decade and precipitation volatility as
the basis for continuing voluntary conservation. The
reimplementation of the WCMA and WCEMA is retroactive to April 20,
2023, which means the revenue protections from these mechanisms are
essentially uninterrupted. However, due to timing of the
reimplementation, the benefit was not reflected in the second or
third quarter results. The estimated amount not yet recorded in
after tax earnings is $2.7 million, as of September 30, 2023.
Connecticut
On October 3, 2023, The Connecticut Water Company (CWC) filed a
GRC application with the Connecticut Public Utilities Regulatory
Authority to amend rates. CWC is requesting a $21.4 million, or
approximately 18.1%, increase over current authorized revenues to
recover approximately $135 million in drinking water and wastewater
infrastructure investment as well increased operating and borrowing
costs. By statute, PURA has 270 days to issue a decision on the
GRC. CWC expects any PURA authorized increase in rates to be
effective on or about July 1, 2024.
On September 25, 2023, CWC received PURA approval of the Water
Infrastructure and Conservation Adjustment (WICA) request filed in
July 2023. The increase became effective on October 1, 2023, and
will generate approximately $1.3 million in annualized revenues.
The cumulative WICA is now 7.38%. The WICA in place when the GRC is
decided will be folded into base rates and the surcharge mechanism
will then be reset to zero. The cumulative cap between general rate
cases is 10%.
Maine
On August 25, 2023, Maine Water Company (MWC) was authorized by
the Maine Public Utilities Commission (MPUC) to implement a
temporary annualized rate increase of $1.5 million, or 10%, in its
Biddeford Saco Division. The temporary rate will remain in effect
until the company’s full request for a $2.9 million revenue
increase, which was filed in March 2023, is litigated before the
MPUC. The increase is to cover the operating expenses and increased
borrowing costs of the $60 million Saco River Drinking Water
Resource Center that went in-service in June 2022. A final decision
is expected in the fourth quarter of 2023.
On June 30, 2023, MWC filed a Water Infrastructure Surcharge for
the Camden-Rockland division. If approved as filed, the requested
surcharge would generate $158,000 in annualized revenues. The MPUC
is expected to issue a decision regarding the surcharge in the
fourth quarter of 2023.
Texas
On August 14, 2023, Texas Water Company (TWC) closed on the
acquisition of KT Water Development and Texas Water Resources (TWR)
closed on the acquisition of KT Water Resources.
KT Water Development provides service to approximately 570
residential water connections. The PUCT’s final decision that
transfers the Certificate of Convenience and Necessity (CCN) to TWC
is expected in the fourth quarter, which is when we anticipate
approval of our request for fair market value and filed rate
doctrine treatment. Fair market value treatment allows acquiring
water utilities to recover the current fair market value of an
acquired utility in rate base. Applied rate doctrine allows
acquiring utilities to apply its current rates to customers of an
acquired company at the time of closing.
KT Water Resources is a water wholesaler that increases TWC’s
water supply by approximately 6,000 acre feet per year, which can
be wholesaled to TWC to increase its water supply by up to 40%.
Customers are expected to begin to see the full water supply
benefit of the acquisition beginning in the next two to three years
as the necessary infrastructure is constructed to connect this
critical new water supply to TWC’s existing water systems.
TWC's application for a system improvement charge (SIC) is
pending before the PUCT and on October 17, 2023 it was determined
to be administratively complete. We expect the PUCT to issue a
final decision on the application in the first quarter of 2024. The
SIC would allow TWC to add certain utility plant additions made
since 2020 to its rate base, thereby increasing revenue and
avoiding the immediate need for a general rate case. The SIC is
projected to increase TWC’s water revenue by $1.6 million and sewer
revenue by $29,000 within one year of the SIC's approval.
ESG Initiatives & Recognition
MSCI has increased the company’s rating to “A” from “BBB” after
its most recent review of the company’s ESG activities. SJW Group
has consistently maintained its Prime status from Institutional
Shareholder Services for ESG performance above the sector specific
PRIME threshold.
A new 463 megawatt hours (MH/h) photovoltaic solar installation
was recently completed at the company’s New England headquarters in
Clinton, Connecticut. By the end of 2023, SJW Group companies
expect to have nearly 2,300 MW/h of installed solar generation.
Additional solar projects are projected to be online in the coming
years. By the end of 2024, we project that our installed solar
capacity will increase to nearly 6,200 MW/h, which we expect will
generate cost savings for our customers and follows our strategy of
investing in infrastructure that reduces operating costs. Solar
generation is an important part of our goal to reduce greenhouse
gas emissions by 50% in 2030, compared to 2019.
Earnings Guidance Increased
In consideration of the year-to-date results, SJW Group is
increasing the company’s 2023 full-year guidance:
- Net income per diluted common share of $2.65 to $2.70
range;
- Non-linear long-term diluted EPS growth of 5% to 7%, anchored
off of 2022 diluted EPS of $2.43; and
- Regulated infrastructure investments of approximately $255
million in 2023.
Factors underlying the 2023 guidance increase include higher
customer usage in the third quarter, management execution on
initiatives implemented to address anticipated challenges, income
tax reserve release, year-end repairs tax study, and constructive
regulatory decisions.
Our guidance is also subject to risks and uncertainties,
including, without limitation, those factors outlined in the
“Forward Looking Statements” of this release and the “Risk Factors”
section of the company’s annual and quarterly reports filed with
the Securities and Exchange Commission.
Dividend
The directors of SJW Group have declared a quarterly cash
dividend on common stock of $0.38 per share, payable on December 1,
2023 to shareholders of record at the close of business on November
6, 2023. Dividends have been paid on SJW Group’s and its
predecessor’s common stock for more than 79 consecutive years. For
55 consecutive years, SJW Group stockholders have received an
increase in their calendar year dividend without interruption or
reduction, which places it in an exclusive group of companies on
the New York Stock Exchange.
Financial Results Call Information
Eric W. Thornburg, president, chief executive officer and board
chair, and Andrew F. Walters, chief financial officer and
treasurer, will review results for the third quarter 2023 in a live
webcast presentation at 11 a.m. PT, or 2 p.m. ET, on Monday,
October 30, 2023.
Interested parties may access the webcast and related
presentation materials at the website www.sjwgroup.com. An archive
of the webcast will be available until January 22, 2024.
About SJW Group
SJW Group is among the largest investor-owned pure-play water
and wastewater utilities in the United States, providing
life-sustaining and high-quality water service to nearly 1.5
million people. SJW Group’s locally led and operated water
utilities - San Jose Water Company in California, The Connecticut
Water Company in Connecticut, The Maine Water Company in Maine, and
SJWTX, Inc. (dba The Texas Water Company) in Texas - possess the
financial strength, operational expertise, and technological
innovation to safeguard the environment, deliver outstanding
service to customers, and provide opportunities to employees. SJW
Group remains focused on investing in its operations, remaining
actively engaged in its local communities, and delivering continued
sustainable value to its stockholders. For more information about
SJW Group, please visit www.sjwgroup.com.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Some of these forward-looking statements can be identified
by the use of forward-looking words such as “believes,” “expects,”
“estimates,” “anticipates,” “intends,” “seeks,” “plans,”
“projects,” “may,” “should,” “will,” or the negative of those words
or other comparable terminology. These forward looking statements
are only predictions and are subject to risks, uncertainties, and
assumptions that are difficult to predict.
These forward-looking statements involve a number of risks,
uncertainties and assumptions including, but not limited to, the
following factors: (1) the effect of water, utility, environmental
and other governmental policies and regulations, including
regulatory actions concerning rates, authorized return on equity,
authorized capital structures, capital expenditures and other
decisions; (2) changes in demand for water and other services; (3)
unanticipated weather conditions and changes in seasonality
including those affecting water supply and customer usage; (4) the
effect of the impact of climate change; (5) unexpected costs,
charges or expenses; (6) our ability to successfully evaluate
investments in new business and growth initiatives; (7)
contamination of our water supplies and damage or failure of our
water equipment and infrastructure; (8) the risk of work stoppages,
strikes and other labor-related actions; (9) catastrophic events
such as fires, earthquakes, explosions, floods, ice storms,
tornadoes, hurricanes, terrorist acts, physical attacks,
cyber-attacks, epidemic, or similar occurrences; (10) changes in
general economic, political, business and financial market
conditions; (11) the ability to obtain financing on favorable
terms, which can be affected by various factors, including credit
ratings, changes in interest rates, compliance with regulatory
requirements, compliance with the terms and conditions of our
outstanding indebtedness, and general market and economic
conditions; and (12) legislative, and general market and economic
developments. The risks, uncertainties and other factors may cause
the actual results, performance or achievements of SJW Group to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.
Results for a quarter are not indicative of results for a full
year due to seasonality and other factors. Other factors that may
cause actual results, performance or achievements to materially
differ are described in SJW Group’s most recent Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K filed with the SEC. Forward-looking statements are not
guarantees of performance, and speak only as of the date made. SJW
Group undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.
SJW Group
Condensed Consolidated Statements
of Comprehensive Income
(Unaudited)
(in thousands, except share and
per share data)
Three months ended September
30,
Nine months ended September
30,
2023
2022
2023
2022
REVENUE
$
204,843
175,981
$
499,025
449,324
OPERATING EXPENSE:
Production Expenses:
Purchased water
46,044
38,744
101,054
84,313
Power
2,785
3,913
7,363
10,387
Groundwater extraction charges
21,398
19,059
46,751
51,347
Other production expenses
12,415
11,888
36,379
33,607
Total production expenses
82,642
73,604
191,547
179,654
Administrative and general
23,888
23,909
71,759
71,374
Maintenance
6,457
7,065
18,813
20,651
Property taxes and other non-income
taxes
8,795
8,354
25,092
24,242
Depreciation and amortization
26,455
25,529
78,872
78,342
Gain on sale of nonutility property
—
(82
)
—
(5,532
)
Total operating expense
148,237
138,379
386,083
368,731
OPERATING INCOME
56,606
37,602
112,942
80,593
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other
interest expense
(16,744
)
(14,190
)
(48,913
)
(42,160
)
Pension non-service (cost) credit
(740
)
970
(906
)
2,860
Other, net
1,661
875
7,042
2,694
Income before income taxes
40,783
25,257
70,165
43,987
Provision for income taxes
4,561
223
4,127
3,658
NET INCOME
36,222
25,034
66,038
40,329
Other comprehensive income (loss), net
318
(173
)
420
(602
)
COMPREHENSIVE INCOME
$
36,540
24,861
$
66,458
39,727
EARNINGS PER SHARE
Basic
$
1.14
0.83
$
2.10
1.33
Diluted
$
1.13
0.82
$
2.09
1.33
DIVIDENDS PER SHARE
$
0.38
0.36
$
1.14
1.08
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic
31,862,518
30,269,462
31,436,077
30,246,201
Diluted
31,934,636
30,392,295
31,526,732
30,358,268
SJW Group
Condensed Consolidated Balance
Sheets
(Unaudited)
(in thousands, except share and
per share data)
September 30,
2023
December 31,
2022
ASSETS
Utility plant:
Land
$
41,427
39,982
Depreciable plant and equipment
3,879,507
3,661,285
Construction in progress
113,204
116,851
Intangible assets
35,946
35,959
Total utility plant
4,070,084
3,854,077
Less accumulated depreciation and
amortization
1,305,134
1,223,760
Net utility plant
2,764,950
2,630,317
Nonutility properties and real estate
investments
13,072
58,033
Less accumulated depreciation and
amortization
192
17,158
Net nonutility properties and real estate
investments
12,880
40,875
CURRENT ASSETS:
Cash and cash equivalents
21,067
12,344
Accounts receivable:
Customers, net of allowances for
uncollectible accounts of $6,661 and $5,753 on September 30, 2023
and December 31, 2022, respectively
70,374
59,172
Other
4,381
5,560
Accrued unbilled utility revenue
62,253
45,722
Assets held for sale
40,850
—
Prepaid expenses
14,996
9,753
Current regulatory assets, net
8,573
16,068
Other current assets
6,277
6,095
228,771
154,714
OTHER ASSETS:
Net regulatory assets, less current
portion
131,420
127,275
Investments
15,901
14,819
Other intangible asset
28,386
—
Goodwill
640,311
640,311
Other
20,809
24,313
836,827
806,718
$
3,843,428
3,632,624
SJW Group
Condensed Consolidated Balance
Sheets
(Unaudited)
(in thousands, except share and
per share data)
September 30,
2023
December 31,
2022
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Stockholders’ equity:
Common stock, $0.001 par value; authorized
70,000,000 shares; issued and outstanding shares 31,933,003 on
September 30, 2023 and 30,801,912 on December 31, 2022
$
32
31
Additional paid-in capital
729,740
651,004
Retained earnings
488,585
458,356
Accumulated other comprehensive income
1,896
1,477
Total stockholders’ equity
1,220,253
1,110,868
Long-term debt, less current portion
1,533,769
1,491,965
2,754,022
2,602,833
CURRENT LIABILITIES:
Lines of credit
128,433
159,578
Current portion of long-term debt
43,464
4,360
Accrued groundwater extraction charges,
purchased water and power
33,170
19,707
Accounts payable
35,926
29,581
Accrued interest
19,165
13,907
Accrued payroll
11,264
11,908
Income tax payable
11,809
2,696
Other current liabilities
24,885
22,913
308,116
264,650
DEFERRED INCOME TAXES
234,558
218,155
ADVANCES FOR CONSTRUCTION
143,810
137,696
CONTRIBUTIONS IN AID OF CONSTRUCTION
328,633
323,668
POSTRETIREMENT BENEFIT PLANS
51,150
59,738
OTHER NONCURRENT LIABILITIES
23,139
25,884
COMMITMENTS AND CONTINGENCIES
$
3,843,428
3,632,624
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231030433040/en/
Andrew F. Walters Chief Financial Officer and Treasurer
408-279-7818 Andrew.Walters@sjwater.com
Daniel J. Meaney, APR Director of Corporate and External
Communications 860.664.6016 Daniel.Meaney@ctwater.com
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